What The Heck Is A Penny Stock?
When you mention stock or the Stock Market, many naturally think of Google, IBM, Apple, Exxon and even Facebook because these publicly traded companies have spent alot of money branding and promoting their names in mainstream media. As a result, their stock and amount per share rises, taking financial ability out of reach for many to purchase and trade. These huge companies and information about them can easily be found anywhere, i.e,: financial section of your daily newspaper, blurbs on your local television and cable networks as well as the S&P 500, Nasdaq, Big Board (NYSE) and are mentioned regularly on the DOW. However,smaller, newer, and virtually unknown publicly traded companies exist as well. Primarily since they aren’t promoted in mainstream media, many people naturally have never heard of them. As a result, we have what is known as Penny Stocks. Ironically, many of today’s large cap companies started out as penny stocks.
So you may ask, What the heck is a penny stock? Well the SEC defines a penny stock to be any stock publicly traded for $5.00′s or less.
That’s right. You can purchase shares of companies for $5.00 or less. That’s why sometimes they are referred to as some of Wall Streets best kept secrets. While, intermediate and novice investors wait around for months for a particular stock to move in price to cash in on a possible profit, many seasoned investors are making money daily by investing and trading in the penny stock market.
Penny Stocks are traded over-the-counter (OTC), over-the-counter bulletin board OTCBB and Pink Sheets…and good information about the companies can sometimes be hard to come by unless you have a team with know how.
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As with all stocks, you will need a middle-man ( a broker) to setup the trading and purchasing platform for you to buy and sell penny stocks. Some brokers will naturally try to stir you away from the penny stock market. (More will be discussed in later post about this subject) But there are a number of awesome online stock brokers that specialize in brokering deals with penny stocks. Do your homework. All brokers are paid commission. Some will show disdain for you wanting to invest in penny stocks. But don’t be dissauded. They are paid according to the amount you spend per investment, so why should they want you to spend 200 and they reap a 2% commission when they can do the same amount of workn and get you to spend 20,000 and get a much higher 2% commission. Do the math. However, you can easily make 300-500% on your investment with penny stocks, when the average rate of return overall in the stock market annually is around 12%.
But for every good thing, there’s a drawback. Because penny Small cap companies are not regulated by the SEC, a lot of good information is not easily found about some of the Small cap companies. So buyer beware is in order. Further, penny stocks are extremely volitile, which mean a trend can shift quickly, making an investor rich or bankrupct within minutes. So do your homework. Make sure you are investing in a company that has a past and a future, if not you may take on unnecessary risk. So research, research, research and then research some more and you will make money in the penny stock market.